Brief of the case
In the case of Pespsi Foods Pvt Ltd vs. Assistant Commissioner of income Tax, (Delhi High Court) has held that third proviso to section 254 (2A) through the insertion of the expression – ‘even if the delay in disposing of the appeal is not attributable to the assessee’– by virtue of the Finance Act, 2008, violates the non-discrimination clause of Article 14 of the Constitution of India. Hence, the said expression is unconstitutional and violate Article 14 of constitution of India is therefore struck down. Thus, Tribunal can grant stay of demand even after the period of 365 days.
Facts of the case
The appellant were initially granted stay by the Income Tax Appellate Tribunal. But, the period of 365 days from the grant of initial stay has elapsed and in view of the provisions of Section 254(2A), as it stands now, the Tribunal cannot grant any further extension of the stay even though the appeals filed by the petitioners before the Tribunal are pending even though the delay in the disposal of the appeals is also not on account of any conduct attributable to the petitioners.
The appellant file Writ petition in High court challenging the validity of the amendment made in section 254 (2A) by Finance Act, 2008 as be violation of Article 14 of the constitution of India.
Whether amendment made by Finance Act 2008 by introducing third proviso to section 254 (2A), which added the words – ‘even if the delay in disposing of the appeal is not attributable to the assessee’, is unconstitutional as contrary to Article 14?
The Bombay High Court in the case of Narang Overseas Private Limited v. Income Tax Appellate Tribunal: 295 ITR 22 (Bombay), the third proviso to Section 254(2A) had been read down in such a manner that even if the period of 365 days from the initial grant of stay had expired, the Tribunal could extend the stay granted, provided the delay was not attributable to the assessee. The amendment brought about by the Finance Act, 2008 sought to nullify this reading of the third proviso to Section 254(2A) of the said Act by introducing the words – ‘even if the delay in disposing of the appeal is not attributable to the assessee’.
That the right of appeal is not inherent, but once it has been granted, it has to be construed as one which effectively redresses the grievances. Further, that the right to obtain a stay of demand/ penalty was integral and cardinal to an effective right of appeal. It was also contended that the introduction of the above mentioned words by virtue of the amendment of 2008 has made the right of appeal illusory and the amendment is, therefore, clearly arbitrary and contrary to the provisions of the Article 14 of the Constitution of India.
It was also contended that the said amendment introduces a classification which has no nexus with the object sought to be achieved. In the first place, it clubs assessees belonging to two different categories as one class. It was contended that the assessees, who are not responsible for any delay in the hearing of the appeal, have been clubbed together with those assessees to whom the delay was attributable. Therefore, the persons belonging to different groups/ classes have been clubbed together in one category and this has caused hostile discrimination against those assessees who are law abiding and did not cause any delay in the hearing of their respective appeals. This, in itself, was violative of Article 14 of the Constitution of India and, therefore, the amendment introduced by virtue of the Finance Act, 2008 was liable to be struck down, as being invalid.
That there was nothing wrong with the amendment brought about in 2008 inasmuch as all it did was to clarify the legislative intent and make it explicit. What was already provided under the said Act in the third proviso to Section 254(2A) has merely been clarified. It was contended that there has been no class treatment given by the legislature and that the said provision is not discriminatory. The intention behind the amendment was to clarify that the period of stay cannot be extended beyond 365 days under any circumstances. A reference was also made to this Court’s decision in Maruti Suzuki (India) Limited (supra). Reliance was also placed on a decision of the Bombay High Court in the case of Jethmal Faujimal Soni v. Income Tax Appellate Tribunal: (2011) 333 ITR 96 and V. M. Salgaocar and Brothers v. Board of Trustees of Port of Mormugao and Another: (2005) 4 SCC 613.
High Court decision / observations
1. In Dr Subramanian Swamy, a Constitution Bench of the Supreme Court, while considering the parameters which needed to be kept in mind in determining whether a particular provision of a statute was violative of Article 14 or not, made the following observations:-
“Court’s approach “
49. Where there is challenge to the constitutional validity of a law enacted by the legislature, the Court must keep in view that there is always a presumption of constitutionality of an enactment, and a clear transgression of constitutional principles must be shown. The fundamental nature and importance of the legislative process needs to be recognized by the Court and due regard and deference must be accorded to the legislative process. Where the legislation is sought to be challenged as being unconstitutional and violative of Article 14 of the Constitution, the Court must remind itself to the principles relating to the applicability of Article 14 in relation to invalidation of legislation. The two dimensions of Article 14 in its application to legislation and rendering legislation invalid are now well recognized and these are (i) discrimination, based on an impermissible or invalid classification and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on the executive, whether in the form of delegated legislation or by way of conferment of authority to pass administrative orders-if such conferment is without any guidance, control or checks, it is violative of Article 14 of the Constitution. The Court also needs to be mindful that a legislation does not become unconstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. It is well settled that the courts do not substitute their views on what the policy is.”
2. It is clear that where legislation is sought to be challenged, as being unconstitutional or violative of Article 14 of the Constitution, the Court must keep in mind the principles relating to the applicability of Article 14 in relation to invalidation of legislation.
3. Keeping in mind the principles set out by the Supreme Court in Dr Subramanian Swamy (supra), we need to examine whether the present challenge to the validity of the third proviso to Section 254(2A) can be sustained. This is not a case of excessive delegation of powers and, therefore, we need not bother about the second dimension of Article 14 in its application to legislation. We are here concerned with the question of discrimination, based on an impermissible or invalid classification. It is abundantly clear that the power granted to the Tribunal to hear and entertain an appeal and to pass orders would include the ancillary power of the Tribunal to grant a stay.
4. Of course, the exercise of that power can be subjected to certain conditions. In the present case, we find that there are several conditions which have been stipulated. First of all, as per the first proviso to Section 254(2A), a stay order could be passed for a period not exceeding 180 days and the Tribunal should dispose of the appeal within that period. The second proviso stipulates that in case the appeal is not disposed of within the period of 180 days, if the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to extend the stay for a period not exceeding 365 days in aggregate.
5. Once again, the Tribunal is directed to dispose of the appeal within the said period of stay. The third proviso, as it stands today, stipulates that if the appeal is not disposed of within the period of 365 days, then the order of stay shall stand vacated, even if the delay in disposing of the appeal is not attributable to the assessee. While it could be argued that the condition that the stay order could be extended beyond a period of 180 days only if the delay in disposing of the appeal was not attributable to the assessee was a reasonable condition on the power of the Tribunal to the grant an order of stay, it can, by no stretch of imagination, be argued that where the assessee is not responsible for the delay in the disposal of the appeal, yet the Tribunal has no power to extend the stay beyond the period of 365 days.
6. The intention of the legislature, which has been made explicit by insertion of the words – ‘even if the delay in disposing of the appeal is not attributable to the assessee’– renders the right of appeal granted to the assessee by the statute to be illusory for no fault on the part of the assessee. The stay, which was available to him prior to the 365 days having passed, is snatched away simply because the Tribunal has, for whatever reason, not attributable to the assessee, been unable to dispose of the appeal. Take the case of delay being caused in the disposal of the appeal on the part of the revenue. Even in that case, the stay would stand vacated on the expiry of 365 days. This is despite the fact that the stay was granted by the Tribunal, in the first instance, upon considering the prima facie merits of the case through a reasoned order.
7. Furthermore, the petitioners are correct in their submission that unequals have been treated equally. Assessees who, after having obtained stay orders and by their conduct delay the appeal proceedings, have been treated in the same manner in which assessees, who have not, in any way, delayed the proceedings in the appeal. The two classes of assessees are distinct and cannot be clubbed together. This clubbing together has led to hostile discrimination against the assessees to whom the delay is not attributable.
8. It is for this reason that we find that the insertion of the expression – ‘even if the delay in disposing of the appeal is not attributable to the assessee’– by virtue of the Finance Act, 2008, violates the non-discrimination clause of Article 14 of the Constitution of India. The object that appeals should be heard expeditiously and that assesses should not misuse the stay orders granted in their favour by adopting delaying tactics is not at all achieved by the provision as it stands.
9. On the contrary, the clubbing together of ‘well behaved’ assesses and those who cause delay in the appeal proceedings is itself violative of Article 14 of the Constitution and has no nexus or connection with the object sought to be achieved. The said expression introduced by the Finance Act, 2008 is, therefore, struck down as being violative of Article 14 of the Constitution of India. This would revert us to the position of law as interpreted by the Bombay High Court in Narang Overseas (supra), with which we are in full agreement. Consequently, we hold that, where the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deserving cases. The writ petitions are allowed as above.